Sources of Information in Fraud Investigations

Written by Tracy L. Coenen, CPA, CFF

Wisconsin Law Journal

When you think of information in an internal fraud investigation, you most likely think of things like a company’s internal records. These include accounting documents, personnel files, payroll records, accounting system information, and internal memos. While these items are key parts of an internal investigation, they are not the only tools a fraud investigator may use.

Most people don’t think about all the other records available to assist in an investigation. There are many public and non-public records that can aid the investigator in determining who was involved, where the money went, and what the motive for the fraud may have been. These records are invaluable to the investigator, and often play a key role in determining the details of a fraud.

Non-Public Records
Some of the most commonly requested personal records include banking information and federal tax returns. A company investigating an employee accused of theft does not have an absolute right to see these personal records. If they are important to the case, however, a judge may authorize access to them. Alternatively, a suspect who is cooperating may voluntarily release the records in the interest of full disclosure.

Banking records will show cash inflows and outflows for an individual or company. They may be helpful in showing the receipt of illicit funds or the deposit of a forged check, for example. These records help the investigator assemble a paper trail of the money.

For example, a purchasing agent who is involved in a scheme to over-bill his employer for raw materials may receive a check for a kickback from the supplier. He may deposit that check to his bank account, and then write checks to other players in the scheme. Banking records will help substantiate the timing and flow of the money.

Tax returns can provide much more information that you might expect. Not only do they document legitimate sources of income, they also give clues about assets owned by the individual. Interest and dividend income can give hints about the amount of money on hand in banks and investment accounts, and mortgage interest and property tax payments can point to real estate owned. The tax information may also help locate investment and bank accounts, and give clues about ownership of other assets.

Additional private records that can provide much useful information to a fraud investigator may include telephone records, credit card statements, credit reports, and mortgage loan files,. Telephone records can tie a suspect to other potential players in a fraud scheme. Credit reports and credit card statements can demonstrate a financial motive for fraud, and can also give clues about a suspect’s whereabouts and purchases. Mortgage loan files, like the tax returns, can provide hints about bank accounts, investment accounts, real estate owned, and other assets owned.

Public Records

There are many, many public records available on individuals and companies, but the key is identifying and retrieving useful and accurate records. Data aggregators make it fairly easy to access this type of information with searches that include criminal, civil, and bankruptcy records for nearly all states. Also included in their searches are real estate records, driver’s license data, and vehicle registration information. Corporate records accessible through a data aggregator may include incorporation paperwork, director and officer information, and registered agent address.

While data aggregation services can provide valuable information, the reports generated can be lengthy. Additionally, erroneous information can be included in the search results. It is important to gain familiarity with the reports so that you know what information is likely to be inaccurate, and how it may have gotten there. Once data is believed to be accurate, it may be necessary to go directly to the source of information, such as the register of deeds or the courthouse to get proof of the accuracy of the information.

Court records can be obtained directly via Internet services or in person. Many private investigators will go to courthouses to retrieve documents in the event that you are not local to the jurisdiction. Register of deeds information can also be obtained in the same fashion.

These public sources can provide much information about the assets and activities of people and businesses. An investigator may be looking for evidence of a difficult financial situation, which could be a motive for fraud. Records like delinquent property tax bills or civil court records related to a judgment may provide the information needed to prove this motive.

Additional public sources of data include regulatory filings. Financial statements and reports filed with the Securities and Exchange Commission or other regulatory bodies provide information about a company’s finances, officer compensation, and company operations.

Other Records

Internet search engines and websites designed to mine data on the internet can provide lots of valuable information. The key is in knowing where to look, what is reliable, and how to get the best information available. Corporate websites often provide information on ownership, management, and board members, but the first step is to find relevant sites.

The typical internet user will probably spend her or his time searching Google to find information on a person or situation. While the Google search engine can turn up relevant and important information, it is not even close to the whole story. Other search engines use different ways of culling through the information on the Internet, so they will turn up different information. It is often helpful to use multiple search engines when seeking information. It is important, however, to look beyond just search engine data. Sources that specialize in certain types of information can sometimes be more helpful than a general search engine.

Reliable and Current

The key with any information located during an investigation is determining the accuracy and reliability of the information. For example, certain websites that provide detailed information on property assessments may be months or years out-of-date, depending upon the location of the property.

When in doubt, I seek to verify the accuracy of the information with the ultimate source of the data. I spend time cross-checking facts to make sure that the information found is relevant to the person or company under investigation. Good fraud investigators go beyond the traditional documents available to accountants and auditors, and they seek out collateral sources of information that can help prove the motives and details behind a case.

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